Agriculture is certainly an unpredictable industry. From crop loss to extreme weather, sometimes things on the farm just don’t go as planned. Yet, when it comes to securing loans and other financing solutions, historic losses can be a deal breaker for most lenders, even if they occurred for good reason. That’s where alternative and private lenders step in.
Lending is Primarily Based on Levels of Risk
Conventional lenders like banks, credit unions or government agencies typically have strict guidelines they need to follow when approving loans. Their policies generally only allow them to take on a small level of risk, so they need to review potential borrowers very carefully.
When a borrower approaches a conventional lender for a loan, the lender will conduct a comprehensive background check into the borrower’s financial history. They’ll use a set of metrics, known as lending ratios or qualifying ratios, to calculate the borrower’s level of risk. Based on the level of risk assigned, the lender will then decide if the borrower qualifies for the loan they’re asking for.
What is Prime Lending?
Lenders can be categorized by the level of risk they’re willing to tolerate. Banks are typically known as “A lenders” or “prime lenders”. These low-risk lenders will only take on “A-level” borrowers who meet their stricter requirements for income, credit score, debt levels and other financial factors. This gives A lenders better control over the probability that a borrower will default on their loan, which allows them to keep their lending rates competitive.
What is Alternative Lending?
When a borrower gets turned away from an A-level lender, they can try approaching a B-level lender, also known as an alternative lender for more flexible financial solutions. Generally, the higher the level of risk, the higher the rate the lender will need to charge. This helps the lender to protect themselves if the borrower defaults on their loan.
But borrowing from an alternative lender doesn’t mean the borrower is stuck paying a higher-risk rate forever. The alternative lender’s ultimate goal is to help the borrower through a tough time until they’re back to a comfortable financial position where they can approach—and get approved by—A-level lenders again.
What is Private Lending?
Private lender funds can come from individuals, companies, or a syndicate of individuals and/or companies. Because their funds are sourced privately, private lenders typically don’t have to follow the same strict guidelines that conventional lenders do. They’re also usually more interested in the borrower’s equity than they are their financial history. This gives private lenders a higher risk tolerance and allows them to be more accommodating with their approvals. Like alternative lenders, a private lender’s goal is to act as a short-term solution for the borrower to help them get back to A-level status without losing their business.
Glengarry is Canada’s First Institutional Private Agricultural Lender
As a private agricultural lender, our team’s goal is to provide financial solutions to Canada’s farmers when conventional lenders don’t meet their needs. We focus on the potential of a farmer’s business over their past, and have the flexibility to make exceptions where conventional lenders cannot.
If you’re a farmer in Ontario or Western Canada interested in learning more about what we can offer, submit a quick online application to get started.
If you’re a broker interested in learning more about how we can work together, visit our Broker Resource Page for more information.